Two Essential Volumes on Corruption

The study of corruption and what to do about it is no longer an academic or policy-studies backwater.  Matthew’s bibliography of corruption-related publications now lists over 6,000 books, articles, and reports and, as his regular updates show (thank you Matthew), the list continues to grow at the rate of some 50 plus per month.  That is the good news.  It is also of the course the bad news.  Few practitioners, and I suspect even academics, can claim to have absorbed the learning in the 6,000 current documents let alone keep up with the outpouring of new works.

For those who can’t , I recommend two recent books: Dan Hough’s Analysing Corruption and Alina Mungui-Pippidi and Michael Johnston’s Transitions to Good Governance: Creating Virtuous Circles of Anti-Corruption.  Both do an excellent job of synthesizing and extending recent scholarship on corruption issues, and both do so in a sophisticated but accessible manner.  Both have the added virtue of being available in reasonably priced paperback editions. Continue reading

Why Samsung’s Recent Conviction Will Not Rid South Korea of Chaebols

Samsung is in search of a new leader after Jay Y. Lee, grandson of Samsung’s founder, was convicted of bribing South Korea’s President to approve a controversial merger between two Samsung affiliates. Many thought that the proposed merger, which had been heavily criticized by independent analysts and investors, would not receive the legally-required approval from then-President Park Geun-hye’s administration. Lee allegedly bribed President and people close to her, to the tune of $38 million, for her support. When this corruption was exposed, President Park resigned and Lee was prosecuted and ultimately convicted.

Some hope that these dramatic developments portend more far-reaching changes in South Korea’s economy—in particular, the destruction of the chaebols (literally “wealth clans”), the multinational conglomerates in which leadership is passed from person to person within a family. Many credit chaebols with the successful post-World War II transformation of South Korea’s agrarian economy into an international economic powerhouse, but others criticize chaebols on a number of grounds, including the claim that they concentrate power and wealth in the hands of a small family minority, pay low dividends to ordinary investors, and facilitate the sort of grand corruption exposed in the Samsung affair.

After President Park resigned in disgrace, she was replaced by President Moon Jae-in, promised to put an end to chaebols altogether. Alas, this is unlikely. Indeed, it’s looking increasingly like Samsung’s recent scandal will not have a lasting effect on chaebols, or even on Samsung’s long-term profitability. Continue reading

When Lunch is a Bribe: American and Korean Law Compared

It is the rare businessperson or lobbyist who takes a politician or bureaucrat they barely know to lunch just for the pleasure of their company.  Lunch-buyers may enjoy the food (particularly if the money comes out a corporate pocket) and not all politicians and bureaucrats are self-centered bores.  But face it: the main reason bureaucrats and politicians world-wide are wined and dined by people they hardly know is because they are in positions of power and the meal-buyers want to influence them — perhaps to persuade them to purchase the lunch-buyer’s product for their ministries, maybe to change their minds about pending legislation.  Yet as obvious as the reason for picking up a lunch the tab is, in the Republic of Korea, and many American jurisdictions as well, on its face the law provides that if lunch-buyers admit why they paid for lunch, they and their luncheon companion go to jail.

That despite these laws Seoul’s upscale restaurants and their counterparts in many American state capitols continue to do a brisk lunchtime business suggests many lunch-buying businesspersons and lobbyists and their government guests regularly deny the obvious.  It would be one thing if lawmakers had intended to turn this group into liars and hypocrites, but they did not.  It is instead an unintended consequence of laws actually meant to permit public servants to take lunch with those having business with them. Continue reading

London Anticorruption Summit–Country Commitment Scorecard, Part 2

This post is the second half of my attempt to summarize the commitments (or lack thereof) in the country statements of the 41 countries that attended last week’s London Anticorruption Summit, in four areas highlighted by the Summit’s final Communique:

  1. Increasing access to information on the true beneficial owners of companies, and possibly other legal entities, perhaps through central registers;
  2. Increasing transparency in public procurement;
  3. Strengthening the independence and capacity of national audit institutions, and publicizing audit results (and, more generally, increasing fiscal transparency in other ways); and
  4. Encouraging whistleblowers, strengthening their protection from various forms or retaliation, and developing systems to ensure that law enforcement takes prompt action in response to whistleblower complaints.

These are not the only subjects covered by the Communique and discussed in the country statements. (Other topics include improving asset recovery mechanisms, facilitating more international cooperation and information sharing, joining new initiatives to fight corruption in sports, improving transparency in the extractive sector through initiatives like the Extractive Industries Transparency Initiative, additional measures to fight tax evasion, and several others.) I chose these four partly because they seemed to me of particular importance, and partly because the Communique’s discussion of these four areas seemed particularly focused on prompting substantive legal changes, rather than general improvements in existing mechanisms.

Plenty of others have already provided useful comprehensive assessments of what the country commitments did and did not achieve. My hope is that presenting the results of the rather tedious exercise of going through each country statement one by one for the language on these four issues, and presenting the results in summary form, will be helpful to others out there who want to try to get a sense of how the individual country commitments do or don’t match up against the recommendations in the Communique. My last post covered Afghanistan–Malta; today’s post covers the remaining country statements, Mexico–United States: Continue reading

South Korea’s Corruption Crisis: Sung Wan-jong’s List and Its Fallout

The South Korean political scene is embroiled in a sensational corruption scandal–one that erupted when Sung Wan-jong, a successful businessman whose company was facing financial problems, was found dead (he had hanged himself), holding onto a note containing the names of South Korean officials he had bribed, and the amounts involved. In this note–now known as “Sung Wan-jong’s list”–Mr. Sung wrote that he gave 700 million won (US$639,971) to former Presidential Chief of Staff Huh Tae-yeol, 300 million won (US$274,273) to Incheon Mayor Yoo Jeong-bok, 100 million won (US$91,424) to South Gyeongsang Province Governor Hong Joon-pyo, and 200 million won (US$182,849) to Busan Mayor Suh Byung-soo. Moreover, shortly before he committed suicide, Mr. Sung gave an interview in which he claimed to have passed on bribes of 30 million Korean Won ($27,390) to Prime Minister Lee Wan Koo and 200 million Won ($182,600) to Hong Moon Jong. Since then, the press has consistently followed up with updates and new evidence related to the bribery rising to the surface.

All eight of the figures Mr. Sung accused of accepting bribes have denied the allegations. Investigations are currently still in process. (Reports indicate that progress has been made on gathering necessary evidence to indict Governor Hong Joon-pyo for violating the political funds act. The next target in line is likely to be former Prime Minister Lee Wan Koo, who (perhaps ironically) had led the fight against corruption upon his appointment as Prime Minister just a few months ago.) Still, the accusations are deeply troubling, given that the accused figures are powerful leaders in domestic politics, and Mr. Sung’s list, if it proves accurate, could be evidence of an entirely contaminated political system that could potentially reach the top of the pyramid in South Korean politics. Moreover, the accusations, if corroborated, could also potentially shatter the legitimacy of the 2012 presidential election, particularly given that Mr. Sung alleges that the bribes he paid to Mr. Hong were to be spent for President Park Geun Hye’s presidential election campaign.

Of course, we must be careful not to leap to conclusions—and as a legal matter, these officials are presumed innocent until proven guilty. Nonetheless, given the seriousness and sensational nature of the accusations, and the threat they pose to the legitimacy of the entire South Korean political system, I would advocate two unusual measures in connection with the investigation and potential prosecution of these cases (and similar cases that might arise in the future): Continue reading

There Is No “East Asian Paradox” of Corruption and Development

Imagine that you’re talking to a friend, and you mention that smoking shortens average life expectancy, and that smokers should therefore be encouraged to quit. Suppose your friend replies, “Well, but my uncle Fred smoked every day, and he lived into his 80s.” If your friend means this either (a) as a serious challenge to your empirical claim that smoking is bad for you, or (b) as a critique of your prescriptive argument that smokers should therefore be encouraged to quit, then you would probably find his response absurd on its face. And if your friend were to say that he has posed a serious conceptual conundrum—say he calls it the “Uncle Fred Paradox”—you would probably laugh at him. His argument might seem marginally less ridiculous if he pointed not to his Uncle Fred but to, say, France—which has relatively high smoking rates and relatively high life expectancy—but we probably still wouldn’t view this as a serious challenge to the view that smoking is bad for you, nor would we spend a lot of time wringing our hands worrying about the “France Paradox” in the smoking-health relationship.

Yet for some reason, in serious discussions about the relationship between corruption and economic development, people seem to make precisely this sort of specious argument, and the argument gets taken very seriously by people who should know better. The form the argument takes in this context goes something like this: “It may be true that high corruption seems to be correlated with lower levels of economic development on average. However, many countries in East and Southeast Asia—such as China, South Korea, Japan, Taiwan, Thailand, and Indonesia—either achieved or currently are achieving impressively rapid economic growth despite widespread corruption.” This is the so-called “East Asian Paradox” (a term coined, as far as I know, by Professor Andrew Wedeman — see also his recent book). The somewhat more sophisticated version of the argument, developed most prominently in an article by Professor Michael Rock and Heidi Bonnett, notes that although perceived corruption has a negative relationship with growth and investment in most countries (especially small developing countries), this relationship becomes positive in a subsample consisting of five large, newly-industrializing Asian countries (China, Indonesia, South Korea, Thailand, and Japan), using data drawn from the early 1980s through the mid-1990s.

One encounters more-or-less sophisticated versions of the “East Asian Paradox” argument all the time when talking about the adverse impact of corruption on development. When someone says something like, “Corruption is a major threat to economic development,” someone almost invariably responds with something like, “But what about China? It has achieved impressive economic growth despite widespread corruption.” As far as I’m concerned, this is equivalent to saying, “But what about my Uncle Fred, the lifelong smoker who lived into his 80s?” But in case this is not completely obvious, let me explain why I think the “East Asian Paradox” argument, at least in its usual crude form, is mostly bogus. Continue reading

Guest Post: How to Improve Foreign Bribery Enforcement in Korea

Jeena Kim, a lawyer with Bae, Kim & Lee LLC (Seoul), contributes the following guest post:

South Korea was one of the first signatories to the OECD Anti-Bribery Convention in 1997, and in 1998 Korea enacted legislation–the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions (Korean FBPA)–to implement the convention domestically. Yet while the US Foreign Corrupt Practices Act (FPCA), which served as a model for the Korean FBPA, has been actively enforced throughout the world, the Korean FBPA is significantly under-enforced, especially against corporate offenders. According to the OECD Working Group on Bribery, by the end of 2012, Korea had sanctioned 16 individuals and four legal entities for foreign bribery under the Korean FBPA, whereas the United States had imposed criminal sanctions on 62 individuals and 77 legal entities, and had imposed civil or administrative sanctions on an additional 41 individuals and 55 legal entities. Moreover, only nine cases have been prosecuted and convicted under the Korean FBPA since 1999, and eight of those involved bribery related to procurements for the U.S. army in Korea–that is, cases in which the bribery occurred in Korea rather than abroad. Korea’s under-enforcement of the Korean FBPA against foreign bribery is not only a problem for Korea, but also hinders multinational efforts to combat corruption, and creates many innocent victims in the host countries of bribed foreign officials.

While there are many possible explanations for the under-enforcement of the Korean FBPA, one of the most significant is the difficulty of collecting evidence of foreign bribery. The United States suffered the same problem in the early years of the FCPA, but the US government effectively overcame this obstacle through a two-pronged strategy: (1) granting a cooperation benefit to offenders that came forward and provided evidence, and (2) threatening severe punishment for uncooperative defendants. Many risk-averse companies therefore had the incentive to conduct a robust internal investigation, and to turn over evidence relevant to their own prosecution to the government in exchange for lenient treatment.

The success story of the United States in enforcing prohibitions against foreign bribery suggests a possible approach for Korea, though one that would need to be implemented in a somewhat different way, through different Korean institutions. Here’s how it could work: Continue reading